Question 1

The management assertion related to valuation of transactions and account balances would include all of the following, except:
A)Accurate in terms of dollar amounts and quantities
B)Supported by detailed evidence
C)Real
D)Correctly summarized

Accepted Answer

The three assertions related to valuation of transactions and account balances are accuracy, completeness and valuation or allocation. Option C, "real," is not an assertion related to valuation.

Question 2

During the planning phase of the audit, auditors estimate the monetary amounts that are large enough to make a difference in decision making.This amount is referred to as:
A)Risk
B)Materiality
C)Substantive
D)Sampling

Accepted Answer

Materiality refers to the monetary amount that could potentially affect decision making. During the planning phase of an audit, auditors establish a materiality threshold, which is used to determine the scope of the audit procedures that will be performed. This threshold is based on factors such as the size and nature of the organization, the industry in which it operates, and the potential impact of any misstatements on financial statement users.

Question 3

Which of the following describes a mathematical sum of data that is meaningless to the financial statements but useful for controlling the data and detecting possible missing items?
A)Hash total
B)Batch total
C)Validation check
D)Sequence verification total

Accepted Answer

A hash total is a mathematical sum of data that is used for controlling the data and detecting any potential missing items. It is not directly related to the financial statements but is useful for ensuring the accuracy and completeness of the data. A batch total and sequence verification total are also types of controls used for data verification, but they are not described as being meaningless to financial statements. A validation check is a process used to ensure that data entered into a system is accurate and valid.

Question 4

The main difference between substantive testing and controls testing is:
A)Substantive testing verifies whether information is correct, whereas control tests determine whether the information is managed under a system that promotes correctness.
B)Substantive testing determines whether the information is managed under a system that promotes correctness, whereas control testing verifies whether information is correct.
C)Substantive testing goes further in depth into the internal controls of a company, whereas controls testing just identifies which controls need further review.
D)Substantive testing identifies which controls need further review, whereas controls testing goes further in depth into the internal controls of a company.

Accepted Answer

Substantive testing is focused on verifying whether information is correct, while controls testing is focused on determining whether the information is managed under a system that promotes correctness. Substantive testing involves the testing of account balances, transactions, and disclosures, whereas controls testing involves testing the design and operating effectiveness of controls that are intended to prevent or detect errors or fraud. In other words, substantive testing is looking at the actual output, whereas controls testing is looking at the system in place to ensure the output is accurate.

Question 5

During substantive testing, if material misstatements have been found to exist, which of the following actions should be taken next?
A)Proceed to the audit completion in the reporting phase
B)Re-evaluate the audit risk in the planning phase
C)Re-perform detailed tests of balances
D)Re-perform an internal controls systems analysis

Accepted Answer

When material misstatements are found during substantive testing, it indicates that the initial assessment of audit risk may have been too low. Therefore, the auditor should re-evaluate the audit risk in the planning phase to adjust the audit approach accordingly. This may involve altering the nature, timing, and extent of audit procedures to adequately address the identified risks.

Question 6

The likelihood that errors or fraud may occur is referred to as:
A)Risk
B)Materiality
C)Control tests
D)Sampling

Accepted Answer

Risk refers to the likelihood that errors or fraud may occur. Materiality refers to the significance of an error or fraud, control tests refer to procedures designed to test the effectiveness of internal controls, and sampling refers to the process of selecting a representative portion of a population for testing.

Question 7

This approach, referred to as the white box approach, requires auditors to evaluate IT controls and processing so that they can determine whether the information generated from the system is reliable.
A)Auditing through the system
B)Auditing around the system
C)Computer assisted audit techniques
D)Auditing with the computer

Accepted Answer

The white box approach involves auditing through the system, meaning that auditors evaluate the IT controls and processing to ensure the reliability of the information generated. This is in contrast to the black box approach (auditing around the system), which relies on testing output without evaluating the underlying processing. Computer assisted audit techniques (CAATs) and auditing with the computer are not necessarily synonymous with the white box approach, as they can be used in both black box and white box auditing methods.

Question 8

Which of the following is the most effective way of auditing the internal controls of an IT system?
A)Auditing with the computer
B)Auditing through the computer
C)Auditing around the computer
D)Auditing in the computer

Accepted Answer

Auditing through the computer is the most effective way of auditing the internal controls of an IT system. This involves using computer-assisted audit techniques (CAATs) to extract and analyze data from the system in order to assess the effectiveness of internal controls. Auditing with the computer (A) refers to simply using the computer as a tool in the audit process, while auditing around the computer (C) involves bypassing the computer system altogether and relying on manual processes. Auditing in the computer (D) is not a valid option for auditing internal controls.

Question 9

The IT auditing approach referred to as "auditing through the system" is necessary under which of the following conditions?
A)Supporting documents are available in both electronic and paper form.
B)The auditor does not require evaluation of computer controls.
C)The auditor wants to test computer controls as a basis for evaluating risk and reducing the amount of substantive audit testing required.
D)The use of the IT system has a low impact on the conduct of the audit.

Accepted Answer

Auditing through the system involves testing computer controls as a basis for evaluating risk and reducing the amount of substantive audit testing required. This approach is necessary when the auditor wants to rely on the effectiveness of computer controls. Options A, B, and D are not the correct conditions for using the auditing through the system approach.

Question 10

During this phase of the audit, the auditor must gain a thorough understanding of the client's business and financial reporting systems.When completing this phase, the auditors review and assess the risks and controls related to the business.
A)Tests of controls
B)Substantive tests
C)Audit completion / reporting
D)Audit planning

Accepted Answer

This phase is known as the audit planning phase, as it involves gaining an understanding of the client's business and financial reporting systems, reviewing and assessing risks and controls related to the business, and planning the audit approach accordingly.

Question 11

A large part of the work performed by an auditor in the audit planning process is the gathering of evidence about the company's internal controls.This can be completed in any of the following ways, except:
A)Interviewing key members of the accounting and IT staff
B)Observing policies and procedures
C)Review IT user manuals and systems
D)Preparing memos to summarize their findings

Accepted Answer

Preparing memos to summarize their findings is not a way to gather evidence about the company's internal controls. The other options (interviewing key members, observing policies and procedures, reviewing IT manuals and systems) are valid methods for gathering such evidence.

Question 12

IT auditors may need to be called in to:
A)Consider the effects of computer processing on the audit
B)To assist in testing the automated processes
C)Both of the above
D)Neither of the above

Accepted Answer

IT auditors may need to be called in to consider the effects of computer processing on the audit and to assist in testing the automated processes, making both choice A and B correct.

Question 13

Techniques used for gathering evidence include all of the following, except:
A)Physical examination of assets or supporting documentation
B)Observing activities
C)Adequate planning and supervision
D)Analyzing financial relationships

Accepted Answer

Adequate planning and supervision are not techniques used for gathering evidence, but rather steps that should be taken to ensure the effectiveness and thoroughness of the evidence-gathering process. The other choices listed are all techniques commonly used to gather evidence in auditing and investigative processes.

Question 14

Audit procedures designed to evaluate both general controls and application controls are referred to as:
A)Substantive tests
B)Audit planning
C)IT auditing
D)Test of controls

Accepted Answer

Test of controls are audit procedures designed to evaluate both general controls and application controls. The other options are not specific to evaluating controls. Substantive tests are procedures designed to detect material misstatements and are independent of controls. Audit planning is the process of determining the nature, timing, and extent of audit procedures necessary to achieve the audit objectives. IT auditing is a specialized type of auditing that focuses on reviewing and testing technology systems and processes.

Question 15

The audit practice of "auditing around the computer" is also referred to as:
A)The white box approach
B)The black box approach
C)Computer-assisted audit techniques (CAATs)
D)The gray box approach

Accepted Answer

"Auditing around the computer" is a term used to refer to the black box approach which involves testing the inputs and outputs of a system without delving into the internal workings of the system. This approach is useful in situations where the auditor may not possess the required technical skills to understand the technical details of the system.

Question 16

There are four primary phases of the IT audit.Which of the following is not one of those phases?
A)Planning
B)Evidence audit
C)Tests of controls
D)Substantive tests

Accepted Answer

The four primary phases of the IT audit are Planning, Tests of Controls, Substantive Tests, and Reporting. Evidence audit is not a phase of IT audit.

Question 17

Many companies design their IT systems so that all documents and reports can be retrieved from the system in readable form.Auditors can then compare the documents used to input the data into the system with reports generated from the system, without needing any extensive knowledge of the computer system or evaluation of computer controls.This process is referred to as:
A)Auditing through the system
B)Auditing around the system
C)Computer-assisted audit techniques
D)Auditing with the computer

Accepted Answer

Auditing around the system refers to the process where auditors focus on the inputs and outputs of an IT system without needing to understand the intricate details of how the system processes data. They compare input documents to output reports to verify accuracy and completeness, bypassing the need for in-depth knowledge of the system's internal workings.

Question 18

The proof of the fairness of the financial information is:
A)Tests of controls
B)Substantive tests
C)Audit completion
D)Audit evidence

Accepted Answer

The proof of the fairness of the financial information is provided by the audit evidence obtained by the auditors during the course of the audit. The audit evidence includes the results of substantive tests, tests of controls, and other audit procedures performed by the auditors to obtain sufficient and appropriate evidence about the financial statements. Therefore, option D is the best choice as it directly relates to the proof of the fairness of the financial information.

Question 19

The automated controls that affect all computer applications are referred to as:
A)General controls
B)Specific controls
C)Input controls
D)Application controls

Accepted Answer

General controls are automated controls that are pervasive to all computer applications and impact the overall control environment. Specific controls are automated controls that are unique to a particular application or process. Input controls and application controls are both specific controls.

Question 20

Auditing standards address the importance of understanding both the automated and manual procedures that make up an organization's internal controls and consider how misstatements may occur, including all of the following, except:
A)How transactions are entered into the computer
B)How financial statement are printed from the computer
C)How nonstandard journal entries and adjusting entries are initiated, recorded, and processed
D)How standard journal entries are initiated, recorded, and processed

Accepted Answer

Auditing standards address the importance of understanding both the automated and manual procedures that make up an organization's internal controls and consider how misstatements may occur. Options A, C, and D are all relevant methods that need to be addressed while auditing. However, option B of how financial statements are printed from the computer is not relevant to auditing in terms of internal controls and misstatements.

Quiz 7: Auditing Information Technology-Based Processes

The management assertion related to valuation of transactions and account balances would include all of the following, except:

During the planning phase of the audit, auditors estimate the monetary amounts that are large enough to make a difference in decision making.This amount is referred to as:

Which of the following describes a mathematical sum of data that is meaningless to the financial statements but useful for controlling the data and detecting possible missing items?

The main difference between substantive testing and controls testing is:

During substantive testing, if material misstatements have been found to exist, which of the following actions should be taken next?

The likelihood that errors or fraud may occur is referred to as:

This approach, referred to as the white box approach, requires auditors to evaluate IT controls and processing so that they can determine whether the information generated from the system is reliable.

Which of the following is the most effective way of auditing the internal controls of an IT system?

The IT auditing approach referred to as "auditing through the system" is necessary under which of the following conditions?

During this phase of the audit, the auditor must gain a thorough understanding of the client's business and financial reporting systems.When completing this phase, the auditors review and assess the risks and controls related to the business.

A large part of the work performed by an auditor in the audit planning process is the gathering of evidence about the company's internal controls.This can be completed in any of the following ways, except:

IT auditors may need to be called in to:

Techniques used for gathering evidence include all of the following, except:

Audit procedures designed to evaluate both general controls and application controls are referred to as:

The audit practice of "auditing around the computer" is also referred to as:

There are four primary phases of the IT audit.Which of the following is not one of those phases?

The proof of the fairness of the financial information is:

The automated controls that affect all computer applications are referred to as:

Auditing standards address the importance of understanding both the automated and manual procedures that make up an organization's internal controls and consider how misstatements may occur, including all of the following, except: